Bank Allows Federal Student Loan Borrowers To Refinance At Lower Rates, Convert To Private Loans

While we continue to wait for the Senate to take up a bill that would make it possible for borrowers to refinance private and federal student, one bank is taking matters into its own hands. Citizens Financial Group announced today that it would begin accepting applications from both parents and students to refinance loans at possibly lower rates.

The Wall Street Journal reports that the Rhode Island-based bank will allow holders of federal student loans to refinance into private student loans.

Under the plan, borrowers would need at least $10,000 in federal student loan debt. They would be able to refinance a maximum of $90,000 debt for undergraduate studies, up to $130,000 for undergraduate and graduate studies and up to $170,000 for studies that include medical, dental and law school. Repayment periods would be between 15 to 20 years.

Citizen hopes the new plan attracts new clients to its private student loan business, and keeps them coming back for future financial needs such as mortgages and car loans.

The bank’s goal is “to earn the trust of these customers right out the gate,” the WSJ reports.

Borrowers with good credit scores could get refinancing as low as 2.31% on a variable interest-rate loan – these loans have rates that can change each month. For a fixed loan, rates begin as low as 4.74%.

Citizens says the lowest rates will be given to borrowers with very high credit scores, long-term employment, who have a Citizens’ checking account and enroll in automatic bill payments for their loans.

Parents who carry federal PLUS loans originated since the 2006-2007 academic year are eligible to refinance for a fixed rate between 6.4% and 8.5%. PLUS loans originated before that date carry variable rates.

Those rates should sound a bit familiar, as they are comparable to those included in Massachusetts Senator Elizabeth Warren’s Bank On Students Emergency Loan Refinancing Act. Under the bill, which is expected to come up for vote this week, student loan borrowers would be able to refinance at rates set for first-time borrowers; 3.86% for Undergraduate Direct Loans, 5.41% for Graduate Loans, and 6.41% for PLUS Loans taken out by a student’s parents.

Before borrowers rush to refinance at Citizen be aware of a few caveats. In order for borrowers to be approved for refinancing at Citizens they would need at least a 660 FICO credit score on a scale that runs from 300 to 850.

Additionally, converting federal student loans to private loans means that borrowers will lose several repayment options. For example, the federal government allows income-based repayment that allows borrowers to repay loans based on their income rather than the amount of debt they owe. The repayment plans also allow for principal forgiveness – a situation where, for public service employees, the remaining balance can be waived after 10 years of repayments. Other borrowers must pay for 20 to 25 years depending on the plan in which they are enrolled.

Lowering interest rates on federal student loans has often been a struggle for borrowers. While the government allows borrowers to consolidate loans into one plan, there often isn’t a change in interest rate.

For all the issues with federal student loans, private loans aren’t much better when it comes to refinancing.

In January, Citizens began allowing refinancing for private student loans. That same month, Charter One joined other institutions, such as Wells Fargo and Chase, that reward borrowers for cultivating good credit and responsibly handing credit cards by allowing them participate in the bank’s new Education Refinance Loan.

As advertised it provides borrowers with rates as low as 5.24% and a variable rate of 2.84%; the lowest rates are reserved for those borrowers with better credit.

Student-Loan Borrowers Have Chance to Refinance at Lower Rates [The Wall Street Journal]

Read Comments1

Edit Your Comment

  1. FusioptimaSX says:

    I’m done in 7 years thanks to the public service loan forgiveness program…no thanks.